There has never been a better time to start your own business. Here's a ready reckoner on where and how to find the money for your entrepreneurial dream
The signs are everywhere. Students, women, yuppies , the unemployed, those facing a mid-life crisis, and a whole lot of other categories have succumbed to the e-bug . Frankly, the environment has never been more conducive . Of course, the risks associated with start-ups remain, with more than 50% of all start-ups failing within the first five years. It's just that landing funds to fuel your venture is easier than ever before. search for angel networks,venture capital investors and incubators.
Nonetheless, this is still the most preferred starting point for a majority of businesses.
The trouble with bootstrapping is that it usually means scrimping on capital, which, in turn, curtails the start-up's flexibility and ability to grow. There is also a very real risk of fledgling entrepreneurs overleveraging themselves.
A less risky way to raise seed capital is to pool resources with a group of people who have shared interests and work together to escalate a business idea to at least a prototype. However, if you are sure of the scalability of your venture and are not obsessive about retaining independent control, private funding could be the best option. This comes in various forms, each typically catering to different stages of a start-up, such as the seed stage, early stage and growth stage. Here are some of the options.
ANGEL INVESTORS
These are high net worth individuals , who invest in a start-up in return for a minority share in the business. They are usually serial entrepreneurs or heads of major multinational firms. They can also be a group of individuals who pool in funds to invest.
How angel investing works
Angels typically come into the picture at a start-up's seed stage, when the business idea is just a concept. The business plan itself is very iffy. So what draws an angel's attention? Business ideas that have the potential to generate solid returns, as well as the person behind it, but they are basically in it for altruistic reasons.
Benefits
Angels are patient investors; they typically remain invested for 7-8 years. They review the progress regularly and are even willing to go back to the drawing board, if required . Angel-backed companies tend to do better than the ones that directly approach venture capital investors. You can also expect quick access to funds. It can take anywhere between a day and three months to close a deal.
Drawbacks
The concept of angel funding is still at a nascent stage in most developing nations, so they are difficult to find. You need to boast the right contacts/professional network to bag such funding , besides having the right credentials . "Factors like the entrepreneur's reputation, integrity, clarity of mind and his response to feedback are important for me. He should also be a good listener."On the other hand, is more concerned with the capital efficiency of a business idea. This is why so many IT start-ups , typically both capital-efficient and easily scalable, find favour with angel investors.
However, as Nishant Verman, associate, Canaan Partners, stresses , easy funding is still difficult to come by. "Most countries are no Silicon Valley , where a super angel like Mike Maples will invest in a product when it's no more than a blueprint sketched on a notepad, as in the case of Twitter," he warns.
Hot sectors
"Currently, angels are interested in funding education, mobile value-added services and apps, innovations in healthcare and rural entrepreneurship ," says N Muthuraman , director, RiverBridge Investment Advisors, a boutique financial advisory firm.
No comments:
Post a Comment